6/08/2009 @ 5:20PM

Selling The Stimulus

With the national unemployment rate ticking up to 9.4%, the White House on Monday again reminded the public that the $787 billion economic stimulus program is just getting started. Before meeting with the Cabinet, the president and vice president emphasized in a statement that the stimulus was going to pick up speed over the summer and “create or save” 600,000 jobs in the process.

This is not a new claim or a new number, but it underscores one of the biggest challenges of the public relations act that accompanies the stimulus package–convincing the American people that it’s doing what it’s supposed to be doing.

The stimulus was always scheduled to get off to a slow start. Although tax cuts can be implemented quickly, it takes time to spend money on meaningful projects. The government is following the timeline it said it would, and it has surprised some who expected it to be slower. “Thus far, the rate of spending has been faster than our earlier estimate,” Michael Feroli, U.S. economist for JPMorgan, said in a research note. “It looks as though $60 billion in spending will be out the door in the second quarter, and $30 billion in tax reductions will have been experienced.”

So far, the bulk of the stimulus has come through tax cuts and transfers to state and local governments.

The tax cuts put more money in taxpayers’ pockets, and in aggregate probably save or create jobs. But the centerpiece of the stimulus is a tax cut of about $10 a week for most working Americans. That will add up to a reduction in taxes of about $12 billion in the second quarter, estimates JPMorgan, but pinpointing specifically which jobs are saved is impossible to do from millions of $10-a-week tax cuts.

The same holds for transfer payments to state and local governments.

“There is no way to know what impact the federal stimulus has had on state and local spending outcomes, because there is no way to determine the counter-factual,” says Feroli. In other words, government layoffs would have been worse without the stimulus, but it’s impossible to say how much worse, and thus impossible to know precisely how many jobs were saved.

For its claims, the administration is relying on a January analysis by White House economists Christina Romer, the chair of the Council of Economic Advisers, and Jared Bernstein, economic policy adviser to the vice president. Their model looks at how much the stimulus package would change GDP and then measures how many jobs that size GDP change would create or save. Thus far, the White House claims 150,000 jobs have been created or saved.

(The “created or saved” language is based on a quirk of labor statistics. If 10,000 people lose their jobs and 10,000 new jobs are created, the net change is zero. That’s the same net change as if 10,000 jobs were saved. In the labor statistics used to measure progress, 10,000 created jobs are indistinguishable from 10,000 saved jobs.)

But even as stimulus spending increases over the summer, there will be no immediate way to connect the stimulus spending to any specific 600,000 jobs. In the short run, it’s clear that the stimulus will boost GDP, and thus some job creation can be inferred.

The stimulus legislation requires that recipients provide some accounting for jobs created or saved by the funds. When these numbers are first reported in October, they could contribute to a wave of good press for the legislation. (See “The Economy’s October Surprise.”) But even this could be dubious. Companies have an incentive to over-report to make it look as if their projects created the jobs the government is desperate to show off. If a company gets 25% of its business from stimulus contracts, is it therefore the case that 25% of the jobs are stimulus jobs? And who knows if they would have pursued and found other contracts had they not won funds from the government?

A spurt of good October economic data due to the stimulus does not necessarily translate into a lasting recovery (economists do not consider a quarter or two of positive growth necessarily an indication that a recession is over–indeed, the economy grew in two quarters of the current recession). “All told, we estimate that fiscal stimulus is adding about four percentage points to GDP growth in the middle two quarters of the year, with the contribution quickly tapering off after that and turning negative next year,” says a note from Feroli and Abiel Reinhart, also of JPMorgan.

Thus, the White House is also emphasizing specific projects. Monday, Vice President Joe Biden outlined 10 specific summer goals: The Justice Department will hire 5,500 law enforcement officers; Health and Human Services will build 1,129 health care centers; Interior will have 107 new park projects, and so on, to help put a more specific face on its claims.